Types of Legal Contracts in Business

by Gregory Hamel, Demand Media

The terms of formal contracts are usually detailed in writing.

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Small business owners are often focused on their core business ideas and providing value to customers, but running a business frequently involves legal hurdles that may lie outside of the owner's area of expertise. Contracts are agreements between two or more parties that are enforceable by the law. Many types of legal contracts can arise during the course of operating a business.

Leases

A lease is a contact between a landlord and a tenant that specifies the terms under which the tenant has the right to use the landlord's property. Businesses rent many different sorts of facilities, such as retail store space, offices, manufacturing facilities and warehouses. Small businesses usually don't have the financial resources to buy buildings outright, so start-ups that need physical store space or work areas often enter into leases and rent what they need.

Employment Contracts

An employment contract is a legal agreement between a business and an employee that details the terms of employment, such as pay and benefits. Some small companies operate without formal, written employment contracts, but a written contact can provide more security and certainty to employers and employees than an oral agreement. Businesses that hire independent contractors may enter into contracts called work-for-hire agreements that specify the type of work to be done by contractors and contractor pay.

Sales Contracts

A sales contract is an agreement between two parties that details the terms of a financial transaction and documents the fact that ownership of an asset has transferred from seller to buyer. Small companies often operate without formal sales contracts, but entering into formal agreements for the sale of goods can help ensure a steady inflow of necessary supplies to keep a business running smoothly.

Licensing Agreements

A licensing agreement is a contact between the owner of intellectual property and an outside party, that gives the outside party the right use the intellectual property in a capacity specified it the agreement. Intellectual property describes creations of the mind, such as inventions, designs, original creative works and trademarks. A licensing agreement can allow a small business to earn profit by allowing a larger company to use its resources to develop intellectual property.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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